Question
BSW Bank currently has $800 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 6 percent
BSW Bank currently has $800 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 6 percent of transaction deposits. |
a. | If the Federal Reserve decreases the reserve requirement to 5 percent, show the balance sheet of BSW and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume BSW withdraws all excess reserves and gives out loans, and that borrowers eventually return all of these funds to BSW in the form of transaction deposits. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.) |
Panel A: Initial balance sheets |
Federal Reserve Bank | |||
Assets | Liabilities | ||
_____ (options) Reserve deposits at Fed Transaction deposits Securities Reserve accounts Loans | $ __ million | ______ (options) Securities Transaction deposits Reserve accounts Loans Reserve deposits at Fed | $ million |
BSW Bank | |||
Assets | Liabilities | ||
______ (options) Reserve deposits at Fed Reserve accounts Securities Loans Transaction deposits | $ __ million | ______ (options) Reserve deposits at Fed Loans Securities Reserve accounts Transaction deposits | $ million |
_____ (options) Reserve accounts Securities Transaction deposits Loans Reserve deposits at Fed | ___ million | ||
Panel B: Balance sheet after all changes |
Federal Reserve Bank | |||
Assets | Liabilities | ||
_____ (options)Reserve deposits at Fed Reserve accounts Loans Transaction deposits Securities | $ __ million | _____ (options) Loans Reserve accounts Securities Reserve deposits at Fed Transaction deposits | $ million |
BSW Bank | |||
Assets | Liabilities | ||
_____ (options) Securities Transaction deposits Loans Reserve accounts Reserve deposits at Fed | $ __ million | _____ (options) Loans Reserve deposits at Fed Securities Transaction deposits Reserve accounts | $ million |
_____ (options) Reserve accounts Loans Securities Reserve deposits at Fed Transaction deposits | ___million | ||
b. | Redo part (a) using a 8 percent reserve requirement. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.) |
Panel A: Initial balance sheets |
Federal Reserve Bank | |||
Assets | Liabilities | ||
______ Reserve deposits at Fed Transaction deposits Reserve accounts Loans Securities | $ __ million | ______ Securities Reserve accounts Loans Reserve deposits at Fed Transaction deposits | $ million |
BSW Bank | |||
Assets | Liabilities | ||
________ Reserve accounts Securities Reserve deposits at Fed Loans Transaction deposits | $ __ million | _________ Reserve accounts Transaction deposits Reserve deposits at Fed Securities Loans | $ million |
_______ Reserve accounts Transaction deposits Loans Securities Reserve deposits at Fed | __million | ||
Panel B: Balance sheet after all changes |
Federal Reserve Bank | |||
Assets | Liabilities | ||
_____ Securities Loans Reserve accounts Transaction deposits Reserve deposits at Fed | $ __ million | _____ Securities Transaction deposits Loans Reserve accounts Reserve deposits at Fed | $ million |
BSW Bank | |||
Assets | Liabilities | ||
______ Reserve accounts Transaction deposits Reserve deposits at Fed Loans Securities | $ __ million | _______ Reserve accounts Reserve deposits at Fed Transaction deposits Securities Loans | $ million |
______ Transaction deposits Reserve accounts Loans Reserve deposits at Fed Securities | __ million | ||
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